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2013 (10) TMI 828 - AT - Income TaxRejection of books of accounts u/s 145(3) of the Income Tax Act Computation of G.P. rate on estimation basis - The appellant had shown GP rate at 12.52% in the year under consideration as compared to 11.76% in preceding year which was 10.7% in A.Y. 04-05. The turnover of the assessee has gone up from Rs. 15.3 Crore to Rs. 22.79 core in the year under consideration compared to preceding year. The appellant had shown increase in the turnover as well as in GP Held that - The comparable case cited by the A.O. are having lesser turnover and also were dealing in the different items i.e. assessee is importing and exporting and trading of the diamond as well as the gold jewellery. The case cited by the A.O. are not comparable further he only made the ground for rejection of book result i.e. not maintaining qualitative details of the opening stock purchase sale and closing stock. As various Co-ordinate Bench had decided that this is not a sufficient ground for rejecting the book result. The A.O. has to bring on record other evidences which support the rejection of book result which has not been found place in the assessment order - Further in case of M/s. Dhami Brothers vs. ACIT 2010 (8) TMI 817 - ITAT AHMEDABAD that there is no requirement of law to maintain qualitative details of each peace of diamond for computing the income. - Decided against the revenue.
Issues Involved:
1. Rejection of books of account by the Assessing Officer (A.O.) due to non-maintenance of qualitative details of diamonds. 2. Estimation of Gross Profit (GP) by the A.O. and subsequent addition to income. 3. Deletion of the addition by the Commissioner of Income Tax (Appeals) [CIT(A)]. Issue-wise Detailed Analysis: 1. Rejection of Books of Account: The A.O. rejected the books of account under Section 145(3) of the Income Tax Act due to the assessee's failure to maintain qualitative details of the diamonds. The A.O. argued that the valuation of stock and sales price could not be accurately determined without these details, as the price of diamonds depends on quality factors such as Cut, Colour, Clarity, and Carat (4C). The A.O. cited the case of CIT Vs British Paints India Ltd (1991) 188 ITR 44 (SC) to support the rejection of books of account when primary records are not maintained. 2. Estimation of Gross Profit (GP): The A.O. estimated the GP at 15% on total sales and made an addition of Rs. 56,53,959/- to the income of the assessee. This estimation was based on the comparison with other traders/manufacturers in the same line of business, who had higher GP ratios. The A.O. argued that without qualitative details, the correct income could not be ascertained, and thus, the books of account were unreliable. 3. Deletion of Addition by CIT(A): The CIT(A) deleted the addition made by the A.O., observing that no specific defects were pointed out in the books of account. The CIT(A) noted that the assessee maintained quantitative details, and the A.O.'s rejection of books was solely based on the absence of qualitative details. The CIT(A) referred to various case laws, including the decision of the Jodhpur ITAT in the case of Shree Gautam Textiles, which stated that rejection of book results was not justified when practical difficulties in maintaining process-wise stock registers existed. The CIT(A) also noted that the assessee's GP rate and turnover were better than in previous years, and thus, the addition was unwarranted. Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, emphasizing that the A.O. did not bring any other evidence to support the rejection of the book results. The Tribunal referred to the case of M/s. Dhami Brothers vs. ACIT, which held that maintaining qualitative details of each piece of diamond is not necessary for computing income. The Tribunal distinguished the present case from the case of M/s. Hansal Diam, where the GP was significantly down and qualitative details were not produced. The Tribunal concluded that the rejection of books based solely on the absence of qualitative details was not justified and dismissed the Revenue's appeal. Conclusion: The Tribunal found that the A.O.'s rejection of the books of account and the subsequent GP estimation were not justified due to the lack of specific defects and the absence of qualitative details not being a sufficient ground. The CIT(A)'s deletion of the addition was upheld, and the Revenue's appeal was dismissed.
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